US credit crunch won't hit India's economy: Nath

‘The impact of global financial turmoil will not stun India’s financial growth,’ said Union Commerce Minister Kamal Nath speaking on the global financial chaos during an interaction with special economic zone (SEZ) developers, organised by the export promotion council for EOUs and SEZs (EPCES).

‘As the amount of exposure of the banks was small in Asia and even very little in India, the impact of global economic mayhem on India would be in small fraction. However, it would affect the flow of foreign direct investment,’ said the Commerce Minister by adding that the impact of the global financial crisis on the FDI inflows would be assessed in the next few weeks.

Kamal Nath was speaking after the global financial disaster caused by US credit crisis, worsened when American investment bank Merrill Lynch reached at the edge of bankrupt before finally been bought by Bank of America while another 158-years old and world’s forth largest investment firm Lehman Brothers based on USA has filed for bankruptcy after losing around $60bn in the sinking real-estate market.

The American financial crunch further worsened after the declaration of market fragility by world’s biggest insurance firm American International Group (AIG) that mugged up with huge capital loss and later sought an emergency $80bn from the Federal Reserve, the US central bank.

These three dramatic thrusts in US financial market have brought expanding impact in stock markets across the world which sank sharply on Monday and Tuesday, and still facing financial turbulence.

The Indian Stock markets too witnessed this crunch and the Sensex, the indicator of Bombay Stock Exchange (BSE) with a pack of 30-bluechip companies also fell by more than five hundred points on Monday but recovered quickly on Tuesday and closed on with the marginal down of 12.47 points at 13,518.80.

On Wednesday (Sep 17), BSE Sensex opened with 101.94 points up on the back of some good news that could heal the global market up to great extent. The American Central Bank ‘Federal Reserve’ came ahead in support of AIG by distributing $85bn debt in place of its 80% stake, while Britain based Barclays bank announced to acquire Lehman Brothers.

The effect of US financial collapse has also been seen on Indian forex market as Rupee slip down to 46.97/98 and closed at 46.90 against the previous close of 46.04/05.

However, Nath said that Indian financial sector was based on strong fundamentals and would not din so easily, while on the FDI target he was firm to meet $40bn goal despite of inflow problem after global economy crisis. Commenting upon the US economy, Kamal said, “The USA advised us about best practices. We have the next banking practices.”

However, he also added, “It still has to be assessed to what extent it will affect the economy in Europe,” and the impact of European market would present the new direction of global market.

Speaking on the Special Economic Zone, Nath said that exports from the zones are likely to cross Rs 1,25000 crore mark by registering 100% growth this year. Till December 2009, SEZ would provide direct employment to over 8 lakh people and investment is likely to reach Rs.2,00,000-crore during the period.

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